Is X4 Pharmaceuticals (NASDAQ:XFOR) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that X4 Pharmaceuticals, Inc. (NASDAQ:XFOR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for X4 Pharmaceuticals

What Is X4 Pharmaceuticals's Debt?

As you can see below, at the end of December 2023, X4 Pharmaceuticals had US$54.6m of debt, up from US$33.6m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$114.2m in cash, so it actually has US$59.6m net cash.

How Strong Is X4 Pharmaceuticals' Balance Sheet?

According to the last reported balance sheet, X4 Pharmaceuticals had liabilities of US$22.9m due within 12 months, and liabilities of US$73.3m due beyond 12 months. On the other hand, it had cash of US$114.2m and US$562.0k worth of receivables due within a year. So it actually has US$18.6m more liquid assets than total liabilities.

This surplus suggests that X4 Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that X4 Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine X4 Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since X4 Pharmaceuticals doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is X4 Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year X4 Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$97m and booked a US$101m accounting loss. However, it has net cash of US$59.6m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for X4 Pharmaceuticals (1 is concerning!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.